Earnings pledge to investors as Serco raises dividend by 20pc

Shares in the group, which runs facilities ranging from Britain’s Atomic Weapons Establishment to immigration detention centres in Australia, jumped as much as 12 per cent yesterday.

Analysts had criticised Serco for not paying a high enough dividend, and some have also worried it could be hit by government spending cuts in Europe and the United States.

However, Liberum Capital analyst Joe Brent said the dividend pledge was a sign of the company’s confidence, although it could also be seen as signalling fewer opportunities for expansion.

“If you were being cynical you’d say its a sign of lower growth, but the market will like it, definitely,” he said.

Serco raised its 2012 dividend to 10.1p a share and said it would pay out more to shareholders, at least for the coming years.

The group said earnings covered its dividend payout 4.2 times and it planned to reduce this ratio to 2.5-3.0 times over the next three years.

Serco reported a 6 per cent rise in adjusted pre-tax profit for 2012 to £278.1m. Organic revenue, which excludes acquisitions, rose 3.3 per cent, while margins edged up to 6.4 per cent from 6.2 per cent the year before.

“The organic growth of 3 per cent for the full year, if you dig into it, implies 8 per cent for the second half so it enters 2013 with good momentum,” said Liberum Capital’s Brent.

Serco presented a mixed picture across different geographies, returning to organic revenue growth in its core British market, but seeing a 14 per cent plunge in the Americas, hit by concerns about budget cuts.

Chief executive Chris Hyman said he was targeting new opportunities to provide frontline services in India.